Los Angeles Bankruptcy Lawyers: Understanding Your Credit Score

By Encino Bankruptcy Attorney on October 17, 2012

Reticence to file for a bankruptcy can have a lot to do with fears about how the proceeding is going to impact your credit score.

Our Los Angeles bankruptcy lawyers want to assure you that‚ first of all‚ it won’t kill your score. Secondly‚ proper bankruptcy planning is critical to ensuring your score will bounce back quickly. And thirdly‚ if you are contemplating bankruptcy‚ chances are your credit score has already taken a beating as it is – or is about to if you continue on the same financial road.

What we have found in a lot of cases is that people are mistaken about what a credit report is‚ and is not‚ what is included‚ and what is not.

Here‚ we wanted to provide potential clients with a little more information about it‚ and what they may expect.

Your credit is essentially the score used by a range of potential entities – from insurance companies to banks to mortgage companies – to assess your potential risk. This allows these companies to determine whether they want to take a risk with you by supplying credit‚ and if they do‚ how much they want to charge in order to extend that credit.

Bankruptcy will stay on your score for a number of years‚ and yes‚ could possibly result in you being turned down for certain lines of credit. However‚ many people are surprised when they actually see a slight boost in their credit score after filing. Why is this? Because if you have numerous debts and have continuously been late or delinquent on those payments‚ there will already be numerous marks against you. When your debts are discharged in a bankruptcy and all those debts are wiped from the slate‚ your debt to income ratio improves.

Of course‚ that’s not to say you’ll see it soar‚ but you may also not see it drop a whole lot either.

You may also be encouraged to know that there are a number of other potentially negative marks that won’t appear on or be factored into your credit report. These include:

Your employment status. This is good news if you’ve recently been laid off or are currently unemployed. Typically‚ your report will list your last known employer‚ but not the dates you work there or whether or not you’re still with them.

Your criminal record. The only exception to this might be if you have unpaid fines or tickets‚ which would then show up as overdue debt.

Specifics about medical debt. The Fair Credit Reporting Act bars listing any information on your credit report that could be a breach of your medical privacy. So typically‚ medical debt won’t go on your credit report‚ or if it does‚ it won’t say what specifically you were treated for.

A Chapter 7 bankruptcy will‚ however remain on your report for 10 years‚ while a Chapter 13 bankruptcy will stay on for seven. That doesn’t mean you can’t get credit or that you’ll necessarily be stuck paying high interest rates that whole time. Bankruptcy is only one factor that potential creditors consider.

The best way to ensure your ability to bounce back after a bankruptcy is to make sure you have engaged in proper planning prior to filing. Too many people try to go it alone‚ and end up having an awful experience.

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